China consumer inflation slowest in a year, leaves room for more stimulus
CHINA’S annual consumer inflation slowed to its lowest rate in a year in February, as consumers remained cautious despite the abandonment of strong pandemic controls late in 2022.
The National Bureau of Statistics (NBS) said on Thursday (Mar 9) that the consumer price index (CPI) in February was 1 per cent higher than a year earlier, rising at the slowest pace since February 2022. This was reported along with news of persistent producer deflation.
Analysts said that these in combination showed price pressure had become no obstacle to more government action aimed at supporting economic recovery from Covid-19.
The CPI data came in well below the median estimate of 1.9 per cent in a Reuters poll, and the 2.1 per cent annual rise seen in January.
Bruce Pang, chief economist for greater China at JLL, said: “For monetary policy, which is focused on consolidating the economic recovery and achieving stable upward momentum, there is no constraint from an inflation rate that is within the policy target.”
Meanwhile, Zhang Zhiwei, president of Pinpoint Asset Management, said the figures conflicted with other data that showed considerable strength in domestic demand. “Nonetheless, the weak CPI inflation opens room for the government to launch more monetary easing policies,” he noted.
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Economists generally do not expect big monetary policy moves this year, however. The government cut bank reserve requirements twice last year to stimulate the economy.
Whereas other countries are suffering decades-high inflation rates, strenuous efforts to control Covid-19 in China last year disrupted production and suppressed demand, keeping price pressure contained.
The Chinese government is targeting an average level of consumer prices at about 3 per cent higher this year than in 2022. Economists expect inflation to strengthen in the coming months, mostly thanks to the end of pandemic controls.
Yuan weakens
The yuan weakened on Thursday as the price data revived investors’ doubts about the pace of the recovery, which is facing the challenge of weakening foreign demand and a domestic property downturn.
The country’s parliament has set what analysts say is a conservative growth target – a 2023 gross domestic product of around 5 per cent. This is a sign that policymakers are conscious of economic headwinds.
The NBS attributed the slowing growth in consumer prices to falling demand after the January’s Chinese New Year holidays. It added that most fresh food prices had fallen as a result of warm weather and abundant supply.
The CPI, which is seasonally adjusted, fell 0.5 per cent from a month earlier, missing the forecast of 0.2 per cent gain. The monthly CPI rise in January was 0.8 per cent.
Core annual consumer inflation, which excludes volatile food and energy prices, was 0.6 per cent in February, compared with January’s 1 per cent.
Producer deflation deepened and extended into a fifth month.
The producer price index (PPI) in February was down 1.4 per cent year on year. This was largely driven by softer commodity costs, and exceeded the 0.8 per cent contraction in January. It also surpassed the median forecast decline of 1.3 per cent in a Reuters poll.
Since October, producer prices have consistently been lower than a year earlier.
The economy gave one of its weakest performances in decades last year, squeezed by three years of pandemic controls, the property downturn and a crackdown on private enterprise.
To bolster growth, the government plans to stick with its usual playbook of spending on infrastructure. REUTERS
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